Rating Rationale
November 14, 2018 | Mumbai
Avyaya SBL Northern Arc 2018
(Originator: Home Credit India Finance Private Limited)
'CRISIL A- (SO) for Series A1 PTCs' and 'CRISIL BB+ (SO)' for Series A2 PTCs converted from Provisional Ratings to Final Ratings
 
Rating Action
Trust Name Details Amount Rated (Rs Crore) Outstanding Amount (Rs Crore)*  Original Tenure (Months) Balance Tenure* Credit Collateral (Rs Crore) Ratings/Credit Opinion Rating Action
Avyaya SBL Northern Arc 2018 Series A1 PTCs 96.36 67.23 41 37 8.38 CRISIL A- (SO)  Converted from Provisional Rating to Final Rating
Series A2 PTCs 5.24 5.24  CRISIL BB+ (SO)
1 crore = 10 million
Refer to annexure for Details of Instruments & Bank Facilities
*As after October 2018 payouts
Detailed Rationale

CRISIL has converted the provisional ratings assigned to Series A1 pass-through certificates (PTCs) and Series A2 PTCs issued by 'Avyaya SBL Northern Arc 2018' to final ratings of 'CRISIL A- (SO)' and 'CRISIL BB+ (SO)' respectively. The provisional ratings were assigned on July 11, 2018.
 
CRISIL has received the final legal documents executed for the transaction. With the exception of the quantum of credit collateral in the structure, the executed documents are in line with the transaction terms at the time of initial rating. The credit collateral in the structure is Rs 8.38 crore, higher than the Rs 6.92 crore envisaged at initial rating.  
 
As required, CRISIL has received the following final documents. Accordingly, the 'provisional' ratings have been converted into 'final' ratings.
 
Legal Documents

  1. Trust Deed
  2. Deed of Assignment
  3. Power of Attorney

Other documents

  1. Legal Opinion
  2. Information Memorandum
  3. Auditor's Certificate
  4. Reps & Warranties from Originator
  5. Trustee Awareness Letter

Please click on the link below for detailed information on CRISIL's policy on provisional rating: Revision in CRISIL policy for assigning 'provisional' ratings
 
The transaction is backed by cash loan receivables origniated by Home Credit India Finance Pvt Ltd (HCIFPL; rated 'CRISIL BBB+/Stable'). The ratings are based on the credit support available to PTCs, credit quality of the underlying receivables and soundness of the transaction's legal structure.
 
The transaction has a 'par with excess interest spread (EIS)' structure, wherein the trust has issued Series A1 PTCs and Series A2 PTCs in exchange of a purchase consideration equal to 92.0% and 5.0%, respectively, of the pool principal at the time of securitisation. If 30+ DPD exceeds a pre-determined level; then the EIS shall be utilized to make principal payments to the Series A1 investors and Series A2 investors i.e. the structure will change to par with turbo amortisation structure till the Series A1 PTCs and Series A2 PTCs are fully extinguished or till the time the 30+ DPD falls below the pre-determined level. Total credit support available in the transaction at the time of securitisation was as follows:

  • Internal credit support in the form of scheduled cash flow subordination, aggregating Rs 49.97 crore (31.4 per cent of pool cashflows) and Rs 42.57 crore (26.7 per cent of pool cashflows)  for Series A1 PTCs and Series A2 PTCs, respectively
  • External credit-cum-liquidity collateral of 8.38 crore (8.00% of pool principal) in the form of fixed deposit provides support to Series A1 PTCs and Series A2 PTCs

The transaction envisages ultimate payment structure for principal payouts for both Series A1 and Series A2 PTCs. Series A1 PTCs are senior, and will have the first priority right on the trust property. These PTCs are entitled to monthly interest. Principal and interest payments for Series A2 PTCs are fully subordinated to payouts for Series A1 PTCs on each payout date. On maturity of Series A1 PTCs, Series A2 PTCs are entitled to monthly interest. Catalyst Trusteeship Ltd has been appointed the trustee to monitor the transaction on behalf of the PTC holders. HCIFPL will continue to service the pool contracts as the servicing agent.

Key Rating Drivers & Detailed Description
Supporting Factors
  • Credit support available in the structure
    • Credit collateral of Rs 8.38 crore (8.00% of the pool principal) provides credit support to Series A1 and Series A2 PTCs. The PTCs also benefit from scheduled cashflow subordination at the time of securitisation aggregating Rs 49.97 crore for Series A1 PTCs and Rs 42.57 crore for Series A2 PTCs.
  • Moderate seasoning of contracts in the pool
    • The contracts in the pool had a weighted average seasoning of 10.5 months, and consequently, the pool was amortized by 23.0% as of the cut-off date.
Constraining Factors
  • Unsecured nature of loans and risk profile of underlying borrowers
    • The pool is backed by receivables from unsecured personal loans extended to borrowers with limited credit history and consequently, the underlying borrowers have high credit risk. Performance of the pool will, hence, remain susceptible to risks inherent in the unsecured lending business. However, the good repayment track-record of HCIFPL's cash loan customers while availing acquisition loans (consumer durable loans and two-wheeler loans) from HCIFPL provides comfort.
About the Pool
The transaction is backed by receivables from a pool of cash loan receivables originated by HCIFPL. At the time of securitisation, the pool had a weighted average net seasoning of 10.5 months, with Delhi, Maharashtra and Gujarat accounting for 39.4% of the pool principal outstanding. Average ticket size of the pool was Rs 0.8 lakh at the time of securitisation. All contracts in the pool were current as on the cut-off date (May 31, 2018). CRISIL has adequately factored all these aspects in its rating analysis.

Rating Assumptions
To assess the base case shortfalls for the transaction, CRISIL analysed static pool information (with data on 90+ delinquencies) on cash loan portfolio provided by HCIFPL for originations in the period FY2015 to May 2018 (with performance data till May 2018). 90+ dpd on the cash loan portfolio of HCIFPL is 5.8% as of March 2018.

CRISIL has also factored in pool specific characteristics and estimated the base case peak shortfalls in the pool in the range of 12.0 to 15.0 per cent of pool cash flows.

  • CRISIL has assumed a stressed monthly prepayment rate of 0.1 to 1.0 per cent in its analysis.
  • Based on its assessment of HCIFPL's short-term credit risk profile, CRISIL has factored in the risk arising out of commingling of cash flows.
  • CRISIL has adequately factored in the risks arising on account of counterparties (refer to counterparty details below)
CRISIL has run sensitivities based on various shortfall curves (front-ended, back-ended and normal) and has adequately factored the same in its analysis.
 
Counterparty Details

Capacity

Counterparty Name

Counterparty Rating/Track record

Effect on credit ratings in case of non-performance

Originator HCIFPL Rated 'CRISIL BBB+/Stable' No effect.
Servicer
 		 HCIFPL Rated 'CRISIL BBB+/Stable' Significant effect, because of change in servicing quality and replacement cost of servicer. However, currently CRISIL does not envisage the need for replacement. Under certain circumstances, the trust or investor has right to change the servicer with an intimation to CRISIL.
Collection and Payout Account Bank IndusInd Bank Rated 'CRISIL AA+/CRISIL AA/Stable/CRISIL A1+' Negligible effect. Account bank can be changed without impacting the rating.
Collateral in the form of Fixed Deposit HDFC Bank Rated 'CRISIL AAA/CRISIL AA+/Stable' Negligible effect. Bank with whom the fixed deposit is maintained can be changed without impacting the rating.
Trustee Catalyst Trusteeship Limited Adequate past track record Negligible effect. Can be replaced at minimal cost.

About the Originator
Home Credit India launched operations in 2012 and has presence in 20 states in India. The company initially offers loans for purchase of consumer durables (primarily consisting of mobile phones), and subsequently offers cash loans to borrowers with good repayment track record. It also has a two-wheeler portfolio, which is not expected to increase materially. Its loan book was Rs 4284 crore as on March 31, 2018, of which, 39% was for purchase of consumer durables, 2% for purchase of two-wheelers, and 59% comprised cash loans.
 
Net loss was Rs 426 crore on total income of Rs 617 crore in fiscal 2017, against a net loss of Rs 208 crore on total income of Rs 233 crore in fiscal 2016. During fiscal 2018, the company reported net loss of Rs 261 crore on total income of Rs 1497 crore.

Past rated Pools
CRISIL has  ratings outstanding on 9 securitisation transactions originated by HCIFPL. CRISIL is receiving monthly performance reports pertaining to these transactions.
Key Financial Indicators
As On/For The Period Ended March 31 Unit 2018 2017
Total assets Rs cr 5297 2355
Total income Rs cr 1497 617
Profit after tax Rs cr -261 -426
Gross NPA % 5.6 4.1
Gearing Times 2.5 2.3
Return on assets % -4.9 -26.5

Any other information: Not applicable

Note on complexity levels of the rated instrument:
CRISIL complexity levels are assigned to various types of financial instruments. The CRISIL complexity levels are available on www.crisil.com/complexity-levels. Users are advised to refer to the CRISIL complexity levels for instruments that they consider for investment. Users may also call the Customer Service Helpdesk with queries on specific instruments.
Annexure - Details of Instrument(s)
Type of Instrument Rated Amount
(Rs Cr.)		 Date of Allotment Maturity Date* Coupon Rate (%)
(p.a.p.m.)		 Outstanding
Ratings		 Credit cum liquidity Enhancement (Rs Cr.)
Series A1 PTCs 96.36 28-Jun-18 22-Nov-21 11.35% CRISIL A- (SO) 8.38&
Series A2 PTCs 5.24 28-Jun-18 22-Nov-21 15.00% CRISIL BB+ (SO) 8.38^
*Indicates door to door tenure. Actual tenure will depend on the level of prepayments in the pool
& Additional credit support includes Rs.49.97 crore in form of scheduled cash flows subordination (assuming zero prepayments) - Includes overcollateralization of Rs. 3.14 crore (3.0 per cent of pool principal) and Series A2 PTCs of 5.24 crore (5.0 per cent of pool principal)
^ Additional credit support includes Rs.42.57 crore in form of scheduled cash flow subordination (assuming zero prepayments) ' Includes overcollateralization of Rs 3.14 crore (3.0 per cent of pool principal)
Annexure - Rating History for last 3 Years
  Current 2018 (History) 2017  2016  2015  Start of 2015
Instrument Type Outstanding Amount Rating Date Rating Date Rating Date Rating Date Rating Rating
Series A1 PTCs   LT 67.23 CRISIL A- (SO) 11-07-18 Provisional CRISIL A- (SO)              
Series A2 PTCs   LT 5.24 CRISIL BB+ (SO) 11-07-18 Provisional CRISIL BB+ (SO)              
All amounts are in Rs.Cr.
Table reflects instances where rating is changed or freshly assigned. 'No Rating Change' implies that there was no rating change under the release.
Links to related criteria
CRISILs rating methodology for ABS transactions
Evaluating risks in securitisation transactions - A primer
Legal analysis in structured finance transactions

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